The side-effects of Impact Investing – inevitable market complications!

Here’s a piece where I try to showcase “another side” of impact investing – a controversial and less frequently discussed side, where Impact Investing does a fair bit of harm to markets, in the process of correcting market failure.

After 4 years in management consulting, and before going to business school, I chose to invest a full year of my professional life in the Impact Investing or Social Enterprise space. To be completely honest, I was seeking new adventures. But the most important reason for this was the possibility to pursue a different career direction, with the ultimate aim of finding a better path to reach my longer-term goals (which are “social” in nature). But part of me also wanted to understand whether this space is real. Not real in the sense of whether it exists – clearly this space is huge and here to stay, but rather whether it will actually create the impact it claims to be creating, namely the potential to drag millions if not billions out of poverty – in other words, the potential to “Save the world”. Part of me was always going to be a little skeptical – even if it does to some extent, start to “Save the world”, what are some of the side-effects? I wanted to see for myself, and understand first hand.

This Impact Investing or Social Enterprise space is absolutely humungous now. Between 25% and 50% of my business school classmates are showing some interest in it – many of them will fill the talent gap in this space, and will likely take huge pay cuts for “the greater social good”. There are hundreds of funds now and billions and billions of dollars to invest in this space. At the recent SOCAP Conference in San Francisco this momentum was present in full force. There was much fanfare on display, and plenty of coolade available for those who chose to indulge. At the same time there were also many serious questions raised – Will our small ticket-size fund economics ever be financially sustainable?; Can we ever measure the second bottom line using a standardized methodology that minimizes the potential for manipulation?; Why is there still such a massive talent gap in this space, and what can we do to address it?; Why do we have billions of dollars to invest, but still so many social entrepreneurs complaining about lack of capital? The list of serious fundamental questions is very long, and the dozens of conferences which now take place around the world do not seem to provide sufficient time or space to address them all.

And these are all good questions – but here’s a set of even more fundamental questions which I have been asking, which are almost never raised. In our quest to be market driven, are we doing damage to the very markets we are trying to create? How much of what we are doing is good, and how much is harmful? Can we ever figure out where to draw the line? Do we even have the right structural incentives to draw the lines in the right places, or will we likely get carried away? And why don’t we openly acknowledge these harmful side-effects or distortions? Why can’t there be a healthy debate or discussion on them?

I recently visited a microfinance institution in Kenya, one which has successfully raised and deployed capital from impact investors to reach strong profitability. Now, let’s be very honest and clear here – the capital this institution raised from impact investors is at least 10 percentage points cheaper than the capital it would be able to raise through the markets, either by building a deposit taking capability, or borrowing from local banks. In essence, the impact investors are providing this institution with a 10 percentage point subsidy – presumably, in order to help it get on its feet. Even though it was in the red last year, its most recent financial results show a 4 percent return on assets, a level which many banks would kill to reach (of course no one is willing to subsidize pure commercial banks, even though the likes of Equity Bank have positioned themselves as social enterprises, and received cheap capital in return). So if the impact investors were to leave tomorrow, this institution would be 6 percent of assets in the red.

Clearly philanthropy is supporting this institution – but in this case there’s a tension between philanthropy and market-driven profit which seems to be creating an interesting situation, especially with all the unique objectives and incentives of each of the players involved. So while this institution has reached 4 percent return on assets, the impact investors do not want it to become too profitable. In fact, they have declared an acceptable range of return on assets, which is between 2 percent and 5 percent. In other words, while they do not want to see this institution make a loss, or even a very low profit, they do not want to see their subsidized capital generate what some might deem to be an excessive profit. They have capped profit at 5% return on assets.

Even though it has already reached 4 percent, the institution still has plenty of room to further improve its return on assets. As it continues to grow and build scale, fixed overhead or head office costs will be spread over ever larger field operations. Also, there is potential to make field operations more profitable at the unit level by focusing on the operating level drivers of efficiency or the basic nuts and bolts of a loan officers day e.g. optimal geographic zoning, efficient route planning, providing more efficient transportation through motorbikes, etc.

So what will happen next? If the subsidy is withdrawn, i.e. if the impact investors exit, the institution will drop to 6 percent of assets in the red. But I would argue that the Impact Investors do not really want to exit – they certainly don’t want to see this institution fail. In fact, they want to continue to see this institution grow, and would like to showcase it as a successful example of their investments (in whichever way they might measure or demonstrate this). So they will not exit in the foreseeable future.

So, then! What does the management team do?! They could continue to rapidly build scale and become more efficient. But will they want to do this? I hate to be a cynic, but there are easier ways for them to spend their working days, and this highly profitable subsidy cushion will diminish the need for them to focus on accelerating growth or achieving greater efficiency. They could reduce the interest rate at which they lend to clients. This could be a reasonable way to pass on the subsidy from the philanthropists to the end beneficiaries. But the interest rate which the institution charges to end users is already at the lower end of the broader market, so this “distortion” is likely to make the lives of all the other “market” players more difficult. Alternatively or in addition to this, they could invest their excess earnings in buying top quality expensive equipment, deploying top-notch technology, hiring expensive people, etc. or in other words bloating their operating costs in order to keep net returns low. I suspect that they will do a combination of all the things mentioned in this paragraph – none of which should be done in a more perfect world.

In a more perfect world, I would love to step in and take an equity and management stake in this company and make it as efficient as possible. I am one of those people who can be incentivized by financial upside, and would like to use my strategic inclination and managerial ability to create and capture some of the upside potential. I would strongly argue that efficiency ultimately lowers costs at an aggregated societal level, and creates the greatest possible greater good. When companies operate efficiently, their end users benefit through lower prices and lower costs. Efficiency wakes up the competition and forces them to spend their days and nights also worrying about how to be efficient or innovative. Ultimately, everyone wins. But the objectives, incentives and decision levers here are so misaligned, that there could be no real role for me or the current management team to play, other than that of a bureaucratic fat-cat.

In business school, we celebrate disruptive players like Wal-Mart, Capital One, Jet Blue and Amazon by reading about and discussing their success stories in class. Profit in the market driven sense is a great motivator – for one thing it is easy to measure – unambiguous, and not distorted by subsidies. And when these players push out the cost quality frontier, we celebrate them, because they ultimately do us all a great service. The make the economic system more efficient, and increase our collective wealth.

But I have shown you a real example in the Impact Investing space where we hit a dead-end. Whenever there is philanthropy involved, outcomes are likely to be sub-optimal relative to the market. The whole mantra of markets and philanthropy co-existing ignores the fundamental tensions or side-effects this can create. We often like to assume away problems and trade-offs – it is human nature to do so. It shouldn’t be surprising that most of us are currently doing so in the Impact Investing space.

You might turn around and tell me that I have only provided you with one somewhat peculiar example, or for the more statistically inclined, only one data point. It’s a rare company in this space, which is both profitable and pricing at the lower end of the market. Some might turn around and argue that the Impact Investors should have never capped profit at 5%. Another frequent response which I hear is that it all depends on the “people” and how they manage each particular situation – I do believe that good people can make a big difference, but I would also strongly argue that it is more often much more than people. It is the structural dynamics, incentives and broader norms which determine what happens.

So how about another example, which is more simple and begins to show a generalizable trend or pattern across this space? A family run hybrid maize seed company received an investment from an Impact Investor. This institution pitched itself as a social enterprise, because it works with small-holder farmers helping them boost their crop yield, and also operates in a market where the biggest player is a state owned giant, exercising significant market power. So the family run hybrid maize company gets a subsidy from the impact investor to improve farmers’ lives and take on the state owned monopoly. It is a profitable, for-profit business both with and without the subsidy.

A multi-national seed company, with presence in dozens of markets, expertise in hybrid maize seed production, and a very serious understanding of distribution to base of the pyramid considers entering this market. But it decides not to enter. It will never be able to obtain subsidized impact investment capital, because it is highly profitable in virtually every market that it operates in – in fact, many consider its giant market-driven profiteering ways to be the evil force that fleeces farmers. The subsidy or market distortion created by the Impact Investor to support the family run player, makes the long-term ability of the multi-national to compete on a level playing field uncertain, to the detriment of efficiency in the overall market. Real example!

I have so many Social Investor and Entrepreneur friends, who on the one hand benefit from some of the many forms of subsidies easily available across this space. They access them both directly and indirectly – straight grants; below market rate capital; grant funded technical assistance provided by third party service providers; volunteers coming in and supporting the organization; etc. So while they receive all these benefits, they start complaining any time one of their existing or potential competitors receives a subsidy. And most of them claim to be “market driven” – does anyone else see the contradictions? And can you imagine the uncertainty that a real market-driven potential investor has to live with? Are we not inducing real long-term market failure in this space?

I have described what is happening, but ultimately want to understand why it is happening. There are no clear answers, so I will end with a series of open questions:

Why is this problem not acknowledged and openly discussed in any of our many industry conferences? Do we have a blind spot? Is it too complicated, and requires an understanding of the economics on the ground, which only folks like me who have been there and seen it can bring? (There is a serious criticism which has frequently been written about in industry publications like the Stanford Social Innovation Review, that most of those who attend these conferences have not spent any real time on the ground, and thus do not understand what is really happening). Do we lack the right incentives to bring these problems up? Are we afraid to be really critical, especially when matters are really complicated? Do other people in this space see this problem, and become disillusioned by it? Are they not being listened to? Do they exit back into the real for-profit world and never speak up? Do the ends justify the means, so we cover up or choose to ignore many of our issues and even our detractors?

Or is this just too fundamental a critique of this space and thus makes everyone really uncomfortable? After all, who could possibly imagine that players which are correcting market failure are actually the ones perpetuating it, albeit in different ways.

Understanding religious extremism in Pakistan

Believe it or not, yesterday, more than a quarter century after I was brought onto this planet in a space shuttle (or so my Mom tells me) to save it (#MessiahComplex), I finally set foot in the United States for the first time. I am told that it’s a huge country – the flight path screen and the sheer amount of time it took to make it here, seemed to confirm this. But so far what I have seen between Campus Drive East and the Main Quad, is very pretty, and makes me very happy – I can’t help but grin from ear to ear when I pass by that fountain just down the road from Schwab.

Now, I have been urged by loved ones to use my time in the United States, to both obtain a richer understanding of this country (I maintain, in my somewhat signature arrogant style, that I already understand it a lot – I have watched plenty of Family Guy and American Dad), and spread much required understanding of Pakistan. Decent idea!

I start with a very interesting and important policy-ish dilemma that we face in Pakistan – if we educate and urbanize the population, which is the natural next stage of our development, where almost certainly no other path exists, other than industrialization on a massive scale (large scale education and urbanization being key ingredients), we, to a very large extent, risk fueling an Islamic Reformation Movement, the core of which is “opposed to American interests” (at least humor me by thinking in the direction of the Middle-East, and not blaming everything on more complex and local factors) and the extreme fringe of which can use modern technology to turn violent, and make their presence felt, no matter how small it actually is in terms of power, both numbers and proportions – and not to mention how morally convoluted and practically short-sighted the strategy of this group is.

The roots of this reformation movement lie in the Indian Sub-Continent of the 1800s. Sunni Muslims, which today make up roughly 70% of the Muslim population of the Indian Sub-Continent, split into two schools (literally). The Deobandis on the right side of the political ring, came out of Deoband in modern day India, and are a puritan reformist movement – think of the Great Schism in 16^th Century Europe. The Barelvis, on the left, were a reaction to the Deobandis, and sought to preserve the status quo – think of the Catholic Church. Recent numbers, including votes for the Deobandi Islamist Political Parties, Islamic Banking Penetration, and just the numbers which my gut reports regularly to my brain, seem to suggest that today roughly 20% of the 70% of Sunni Muslims are Deobandi, and roughly 50% of the 70% are Barelvi. The field is divided – there is a massive rift or schism. The most fundamental question is how to view or even interpret (especially if you hold very strong faith and will not listen to secular arguments) religion, in the context of its role within the state.

Understanding the status quo and those who seek to preserve it – The Barelvis

It’s been almost 1,300 years since Islam first arrived in the Indian Sub-Continent. Today only 30% of the population is Muslim, even though Muslim rulers have controlled much of the centralized state for much of this period. What this tells me is that while people have clearly tried, spreading Islam has been difficult – the traditional religions of the Sub-Continent, Hinduism, Jainism, Sikhism and Buddhism had to be reconciled with the radical views of this new religion. What emerged from this process was a hodge-podge of beliefs, and rituals, at the core of which is a strong appreciation for secularism and pluralism – love, peace and humanity.

There are hundreds of Sufi Saints in Pakistan today. These Saints were primarily missionaries, and almost all of them claim to be descendants of the Prophet Mohammed. After they died, cults formed around them and their exploits – so they are revered, and even worshipped. Their Shrines are quite a sight, one reason being their striking resemblance to the shrines of other religions in the area – instead of idols and deities, you will have a grave covered with colorful cloths and worshippers lined up around it. Instead of Bhajjans (traditional Hindu religious songs) you will have a drum beating (dhammal) and lots of intoxicants, the primary one being Bhang or Cannabis. I urge any potential visitors to Pakistan to visit around the time of these Festivals, which celebrate the Death Anniversary of any one of these Saints. Lal Shahbaz Qalandar, in Interior Sindh, is the most popular one, although a little bit inaccessible. Bulleh Shah, in Kasur near Lahore is another very popular one, and a quite a bit more easily accessible.

Now, these Saints preached what any hippy (or good person) preaches – love, peace and humanity. Some of these Saints, for example, Bulleh Shah and Shah Abdul Latif Bhittai, earned their reputation through their poetry, which is very powerful, and forms the much of bedrock of the very rich and sophisticated spiritual and metaphysical inclinations of the populace to this day.

But the interesting twist here is that these Saints accumulated a lot of wealth, through their power and prestige, and their roles were passed down and on to their descendants. To this day, the people of Pakistan revere and visit these “modern day” Hereditary Saints or Pirs. Even my parents, who are highly educated and part of the upper middle class, have visited some of these folks – they appear just like ordinary mortals, but the services they provide can appear to be extra-ordinary to the less than skeptical eye, ranging from praying on your behalf (often for very sick or otherwise troubled persons, which there is never any shortage of), to fortune telling.

If my parents have engaged and indulged in such superstition, who can really blame a poor uneducated rural farmer? These Saints have a massive strangle-hold over the rural population, and use this power through the modern democratic process, to control the many arms of the State. Today, almost 50% of the seats in Parliament are held by these Hereditary Saints, and it is difficult to unseat them through the electoral process, because there is such a strong cult around each of them.

Traditionally, these Hereditary Saints have also held a monopoly over education, quite openly and staunchly denying it to their constituents (or effectively subjects). There are poetic verses which support this – one of the most beautiful and famous of these verses was authored by Bulleh Shah, which I (and many others) interpret to be a tongue-in-cheek reinforcement of this value system (although holding much deeper and broader meaning). The traditional method of home schooling, with a Master (or older Saint) and an under-study, lingered on in a very prestigious and exclusive fashion for a long time until the advent of the modern private school, from where many of these Hereditary Saints today graduate, in addition to completing their traditional education. This strong-hold on education, and strong culturally embedded impulse against education, particularly for the lower classes, is why improving primary enrollment in Pakistan, and making the public school system work has been such a challenge. As one expert on this topic once stated – “Illiteracy in Pakistan is not a problem that the State is facing or dealing with; it is actually the policy of the State”. Cynicism, you ask? May be to some extent, but also quite rich and telling.

With no education, there was traditionally no middle class in the rural areas. Either wage laborers, sometimes bonded (essentially slave-like) generation after generation to landlords (or essentially their slave owners) through the accumulation of massive amounts of family debt, or very large and powerful landholders, who (essentially) owned (or controlled) these subjects and were also their spiritual (and God-like) leaders as Hereditary Saints. These powerful families, who today control the state (through 50% of the seats in Parliament), in the best case display complete apathy towards performing their responsibilities as functionaries of the state, since their power is very unlikely to be challenged, and in worse cases are incompetent or worse still engage in corruption. The system holds little structural room for merit or accountability.

But, these Hereditary Saints do after-all spread the message of love, peace and humanity – and so they form the deepest rooted barrier against religious extremism in the country. Indeed, many external Actors (think in the direction of America) have been accused of perpetuating these Hereditary Saints’ hold on power – for example, by brokering the deal between Benazir Bhutto and Musharraf in 2007. And so, the other large and emerging powerful group, the Deobandis, which already views the Barelvis with particular disdain, is quite frustrated with these external actors. Hard to balance local complexities in alien political systems, especially without fully understanding them – isn’t it? Doesn’t it make China’s attitude of not meddling anywhere seem like such a good idea? How can a powerful actor hold itself back though? Wouldn’t the likes of Billary Clinton be out of a job? All interesting questions, in my view.

Understanding the reformists and the momentum behind their movement – The Deobandis

When the Sub-Continent became British controlled in the 1800s, the British sought to build structures to support the modern centralized nation state, primarily to support their massive infrastructure projects such as the roads, railways, and the new modern irrigation systems opening up vast canal colonies for agriculture (where my forefathers resettled in what is today Pakistani Punjab, from their previous home in what is today Indian Punjab). They educated a new generation of high potential Indians, within which the Muslims were well represented, because of their strong legacy as previous rulers of India (even though they later persecuted them after the 1857 rebellion).

My forefathers also went through this process, which is why I am a real boy sitting in Palo Alto today, and not some Japanese Spitz canine, whose ancestors did not bother to lay a good foundation for their progeny. My Great Grand Father was the village administrator. He maintained the land records and collected taxes, a position which has been passed down through the family to the eldest son, and is today formally held by my father (even though his father’s first cousin executes this responsibility on the ground today, being the closest member of the family still living in the village). My Grand Father joined the professional civil service, and became part of a new class of educated and progressive people – also known as the (upper) “middle-class”. He also sported an Islamic beard towards the end of his life.

With education came empowerment, and people began to question, and even cringe at the (Barelvi) status quo. They turned against everything associated with it – the deity like Saint worship, the intoxication in the religious festivals, etc. In order to make this movement take ideological root, they had to turn towards a very strict and puritan version of Islam. The Wahabis in the not so distant Najd, what is part of modern day Saudi Arabia, provided ample ideas and inspiration.

The Deobandis started out small, but are today both sizable and fast growing. Urbanization and education have provided momentum to their growth, as people arriving to the cities lose touch with their traditional roots and seek new ways to find meaning, purpose and engage themselves ideologically. This group as a whole is aligned in their core beliefs – they seek a radically different political and social system, grounded and guided by Islam, which delivers the basics of justice and economic development – and in more fanciful and ambitious cases, restores the pan-Islamic caliphate, which existed only for a very few number of years after the prophet’s death (because non-religious political complexities, which these folks fail to properly acknowledge and understand, have made such a state impossible). Thus, this group could be accused of being largely “opposed to American interests” (again, please humor me by thinking in the direction of the Middle East – some of the causes are local but it’s hard to argue that there isn’t a broader external theme of justice, or lack thereof). But while these groups agree on their core beliefs, they are in fact very heterogeneous in their strategies and their road-maps to achieving their ends. This is where things become complicated.

On the nice-ish one end are the progressives – these are highly educated Deobandi Muslims, who belong solidly to the middle-class. They are represented by a small but highly organized political party called the Jamaat-e-Islami. When this party appears on television, it almost always sends a woman spokesperson, fully covered from head to toe, expect for the eyes, to represent it. This, it claims very openly and honestly, is in order to promote gender equality – in fact, their strategy is brilliant, and much of their support comes from middle-class women who feel empowered by their approach and agenda. They are a non-violent bunch, and preach engagement through mainstream democratic channels. They have a strong student arm which is particularly well organized, and recruits from the top public universities of the country. One sub-segment within these progressives is the Tableeghi Jammat, or literally the “Missionary Movement”. They go door to door, and preach a lot – in fact I remember them showing up outside my house back in 2003. They couldn’t convince me to come with them to the mosque, but they did try very hard and were very respectful in their approach.

At the end of the day, they employ reason and argument – and while they do so to preach adherence towards some very strict rules (such as covering everything except for your eyes if you’re a lady), they also believe to a large extent in individual rights and freedoms, and strongly preach non-violence. They run quite a few of the madrassas in Pakistan, commonly misunderstood and homogenously viewed as hotbeds of hatred. If you take strong (and possibly unjust) measures against them, some of them will very well start to become angry and move towards the other more extreme fringe of the spectrum – why does this surprise anyone?

Somewhere in the middle of this spectrum or perhaps not even within this spectrum, but claiming to be part of it, are the cronies – they also advocate non-violence and engagement through the political system. My strong personal sense is that these folks are a little less educated and well-off than the progressives, and are composed of the lowest rungs of the urban service class – it is literally truck driver mullah turned political leader resonating with fellow truck driver voter and mosque attendee of the same ethnicity. My somewhat strong judgment and conclusion is that they are largely using religion as a farce to extract patronage from the state. They are represented primarily by the Jamiat-e-Ulema-e-Islam, more specifically the party led by Maulana Fazal-ur-Rehman (abbreviated by JUI-F). JUI-F on the one hand opposes US drone strikes in the Pakistani tribal areas, but on the other hand has been part of every coalition government which has allowed these drone strikes to take place – both the Musharraf and the existing Zardari administrations. Fazl-ur-Rehman has been targeted by suicide bombers, which lends weight to his peaceful credentials. But Fazl-ur-Rehman, according to the Wikileaks dossiers, has also asked the American Ambassador at the time to support him in becoming Prime Minister (presumably by exerting American influence on the other power actors in the country).

In other words these cronies are opportunistic hypocrites, who have abused religious ideology and the continuity of the apathy, incompetence and corruption within the Barelvi-dominated political system, to extract a few gains here and there. The population has become highly vary of them, and the latest polls in some of their strongest areas of traditional support, such as the Pashtun Province of Khyber Pakhtunkhwa and the mega-city of Karachi, show that their popularity is now negligible.

And on the very extreme other end you have none other than, what I will call – the extremists. They form a small fringe of this overall spectrum, but their actions are such, that they get a disproportionate amount of attention. I do not understand their strategy, and neither do the progressives and the cronies, even though they do sympathize with their core ends – I just do not see a path through which they can use this strategy to achieve their ultimate goals.

Some of what they do can be explained by delusion – either the short-term incentives of paradise, virgins and the like, or some long-term can-do attitude which makes them believe that anarchy is on the pathway to power and a strong Islamic State. Socio-economic underdevelopment and injustice creates anger, a fertile environment for these delusions to take hold. But delusions are delusions – some of the most destructive ones often exist in the best of environments. We all have folks in our societies, who at least from our own perspectives are deluded – sometimes they believe in some ancient fairy tale which justifies their strong positions held in almost unquestionable place by very sophisticated modern approaches (e.g. heavy and very effective lobbying, etc.). Many others view these same positions and methods as incorrect and unjust.  It is important at least to understand where everyone is coming from, and the sad truth is that some groups are so powerless that all they can use are crude means, which have become wide spread and easy to deploy due to modern technology.

What I try to explain to everyone (particularly those in the direction of America) is that traditional 19^th and 20^th century power structures (largely built around strong Nation States – think International Relations) have to a large extent broken down in today’s world, with so many ideologies, so many non-state actors and so much technology which both spreads ideas fast and makes violence easy to carry out. One can no longer undertake any actions or support old positions which cannot be justified under basic and universal principles of justice, fair-play and humanity. The band within which we can exercise our traditional power, and hold our societies (nuclear armed one’s even) from becoming anarchic, has become so small, that if we do not realize this soon enough, we might all be in a lot of trouble.

The policy-ish dilemma

There is strong evidence that the lines between the progressives, cronies and extremists are sometimes crossed – even intuitively one can imagine that it requires a lot of wisdom and a very strong temperament to hold yourself back from constantly changing your personal view of what the overall strategy should be.

Given that the situation lends itself to easy crossing, the question is as follows – if you take a development pathway as a country (through industrialization and by implication education and urbanization), which will almost certainly increase the momentum behind this movement, how do you control it? Do you go down the Turkish route and try to embed within the educational system and the national ideological reinforcement process, a requirement to brainwash the population towards secularism? Will a fringe always be out of line, perhaps quite simply, just by rebelling for the sake of rebelling, and more complexly through all the crazy things in the world which cannot be solved all at once, and many of which will never be solved? And does this Turkish approach become a non-starter for most Pakistanis who at the end of the day are somewhat conservative and would have to endorse such a plan to reform themselves through the ballot box?

Or do you make an honest but ideologically religion-agnostic attempt to cook the recipe of strong economic development, and wait for the situation to play out, such as what is currently happening in Egypt with the Muslim Brotherhood (which the US seems to be very afraid of)?

Indeed much of the momentum behind this movement lies in the failure of the state and the justice system. There’s very simple day-to-day tactical justice delivered through courts; there’s more structural social justice delivered through policy and the arms of the state; and there’s even justice in the context of major international conflicts delivered through sovereign states holding strong universally principled positions. The population will obviously demand these things, as it becomes empowered both through education and the right to exercise their vote. So delivering on these basics, while making many of us uncomfortable, is almost certainly the solution to this problem.

The one political party which explicitly makes these promises, and has the will, and the political and intellectual resources to deliver on them is the Pakistan Tehreek-e-Insaaf (PTI) led by Imran Khan. Unfortunately, Imran Khan makes the US as nervous as the Muslim Brotherhood does in Egypt, due to his strong position against US drone strikes in the Pakistani tribal areas, and his background as a born-again Deobandi-ish Muslim (even though he was a bit of a Playboy in his earlier years).

What is very interesting is that this is a very complex problem, especially in the global context and any sort of complexity will create massive confusion in Washington – everyone wants simplistic solutions like bombing a less than trivial percentage of the population out of existence, or shutting down all the madrassas which provide more than just a trivial share of the literacy in the country

It’s complex but nobody who makes an effort to understand the world wants an unstable and underdeveloped Pakistan anymore – a good argument is that it is home to 180 million people or 3% of the world’s humanity which deserves its fair share of justice, dignity and self-esteem. The argument which often resonates though (grounded in very outdated 19^th and 20^th century nation state politics) is that it is nuclear armed and an indirect threat to certain national interests. Whatever the argument, the need for Americans to really understand Pakistan is extremely important – I hope this post has at least been somewhat useful.

China's incredible development - See it to believe it

China’s not a popular stop for most Western tourists, especially backpackers, even though it has so much to offer. This, in my view, creates a lack of understanding of its incredible growth, especially the political systems which have made this growth possible.  Partly to blame – the visa hurdle that most Western tourists no longer have to jump over for most other countries of the world. Indeed when I first applied for a Chinese visa at the Embassy in Nairobi, I was sent spinning like a little toy top, which was nothing short of massively frustrating, even for myself – a lowly citizen of a third world country, teetering on the brink of “pariah state”. I recovered fast though, and managed to put all my paperwork in place for the second attempt – including an itinerary which detailed out exactly where and at what time I was going to have breakfast every morning during our trip. This certainly recalibrated and then spectacularly beat my expectations. I was issued a “GRATIS” or free of cost visa – the fruits of belonging to a “friendly neighbor”. And while the visa policy is changing – I read an Op Ed in the China Daily where officials are considering a proposal to grant visas on arrival to boost tourism – the window of opportunity is closing fast.

Why, you ask? Now my 17 days in the country were nice – very nice. The Great Wall was magnificent; the Pandas, however lazy, were warm and fuzzy; the acrobats showcased some cool tricks; and the giant electronics markets housed many goods, where haggling was fun – “NO, you joking price”; “You make so much profit, you sell now and go buy new iPhone – But, I already have a new iPhone”. So not many complaints – EXCEPT ONE. WHERE IS THE POVERTY?

Between Beijing, Tianjin, Chengdu, Shanghai, Shenzhen and Urumqi, China was so clean – it was sterile. Each of these cities had a spanking new subway system, and oversized glass and steel airports and railway stations. 7 out of 10 commuters on the subways had smartphones, and I can say with some certainty, that these were not all fake copies of iPhones and Samsung Galaxies (I have taken the liberty to pluralize that word like the common noun). People have obviously become fairly wealthy – there’s a massive, very conspicuous, and fairly “consumerist” middle class, and even a very visible youth bulge, in spite of what you would expect after the one child policy. And the Chinese exchequer has become so rich, it can spend on massive infrastructure projects, which my sense is that it subsidizes to a less than trivial extent – a lot of waste on a very large scale (the Fixed Capital Investment as a % of GDP, to GDP Growth ratio is very low, compared to other fast growing emerging markets). And while this kept the cost of our trip to a minimum, it also made every place look and feel the same.

Now, this was not the case three years ago when I visited Shanghai and Suzhou, all expenses covered by the firm for my week long training to become a proper Business Analyst. I chose Shanghai and Suzhou, over Sentosa in Singapore, Copenhagen in Denmark and even the lovely slopes of Kitzbuhel in Austria – a massive ski-resort facility, in one of the prettiest spots in the heart of Europe, used exclusively by the firm year round for the hundreds of trainings that the firm needs to run worldwide. After more than a year in Dubai, I was fascinated by a different kind of development story and longing to see, hear and smell … well – developing country stuff.  At that time China was emerging in impressive ways, but it was still a land of stark contrasts. They had just finished the Maglev train from the spanking new Shanghai airport in Pudong to the city center. But there was also plenty of raw action – the smog on the highway between Shanghai and Suzhou was partly industrial pollution on a giant scale and partly burning trash – sweet smelling and quite a sight when it blanketed the impressive new skyline like a thin grey veil. We took a loud rickety old Tuk Tuk to go see the “Humble Administrator’s Garden”, and paid next to nothing for it. The slums along the canals in Suzhou felt raw and organic, with putrid smells from decaying raw, organic waste, and clothes hung to dry anywhere there was a little bit of space. This was nothing like the inner city Hutongs in Beijing we visited this time, with their fancy public toilets, one not more than 50 meters apart from the other, and their fancy new solar panels, one on at least every second roof. The Tuk Tuks now have a fancy new look, and even the smog has been controlled to a large extent, with the Chinese state looking to roll out European style carbon cap-and-trade schemes in most of the big cities.

Perhaps we didn’t look in the right places – so I took a 2,000 kilometer train ride from Shanghai to Shenzhen, certain that I would not miss unadulterated parts of the countryside. I had no such luck. There were lots of small farms and smallholder farmers – very picturesque – but all this was completely overshadowed by massive tracts of new housing and infrastructure built anywhere and everywhere I looked. Now some claim that the party has hidden massive slums, especially from the sights of Western visitors – Wiki Answers confirms this, and lists 27% as the population of Shanghai which still lives in slums. But I remain skeptical of this view – I maintain that China has either eradicated, or will in the not so distant future, completely eradicate poverty, which makes it the most amazing development story in history. The Wiki Answers figures, or views along the same lines, seem like an old school attack on the repressive nature of China’s political system, engineered by those who cannot reconcile the incredible development story that China actually is with its political system. Many in America are especially hawkish, and view China’s rise as a threat – Billary Clinton repeatedly comes to my current home continent of Africa, and warns the leaders to stay away from Chinese influence.

Surprisingly enough, Chinese attitudes towards America and the rest of the world seem very well intentioned – peaceful and shying away from policy interference. But while I was there, CCTV (the state run television broadcaster, not the local closed circuit security system) repeatedly and for several days showed images of the carnage in the Sikh Temple in Wisconsin – it might have been the news of the day for one day, but I got the sense that this event got protracted coverage on Chinese TV, at least for much longer than on international channels. Perhaps I was over sensitive to this because of the hypothesis in my head, but it might well have been the Chinese State’s policy to pounce on every opportunity to cast America in bad light. And while the party is trying to contain many other inflows of information, such as those from Facebook, Wordpress and Twitter, I read this very interesting Op Ed in the China Daily around how American films and TV shows, which the party has no reason what so ever to keep out, were tempering Chinese public opinion about America. Most people had a favorable opinion of America – the classic dichotomy, “We like American people, but dislike American Foreign Policy”.

Politics has changed so much, especially with all these technological advances, which have made information flows hard to contain through all the seams – this has completely changed North Africa for example, after the Arab Spring. But it also reminds me of another county, Pakistan, where political and media activism has reached an all-time high over the past few years. I have been back here for the last week or so. Who can see why the two countries, Pakistan and China, have played themselves out in such different ways? “We must maintain Socialism with Chinese characteristics”, a speech by Wen Jiabao while I was in China, and published in more than one newspaper that I got my hands on, while only somewhat substantive, was almost hypnotic in the way that it called for, and repeated calls for, and re-repeated calls for alignment (or rather continued alignment) with party ideology. They (the Chinese) built a high speed train from Beijing to Tianjin which covers 150 kilometers in just over half an hour. The secret? Make the track completely straight, and align everyone politically (clearly a euphemism for what they actually do) to ensure your public land requisition policies and processes make it easy to acquire any and every piece of land which might be required to further the cause of development.

How would we in Pakistan ever build such a railway line? Between our democratically elected President, Mr. Ten Percent, our judiciary with its role in acting as a check and balance headed by Mr. Suo Moto Action, and the Executive led by Mr. Rental Power, the legislation should be easy to enact. Between Khadim-e-Aala, the Tsunami, the Don of London, the military, our active media, and our many ordinary mobs, with their expertise in burning tyres and blocking roads with stones, strong opposition would also be important in creating a healthy democratic system which would fund and implement such a project. And if such a railway line had to pass through the estate of a Feudal or Tribal Baron, the cost of the project would not become prohibitive, because surely the law of the land and the writ of the state would prevail. Even in the worst case scenario, where the Feudal or Tribal fiefdoms decide to blow it up every couple of months to create leverage against the state and the rest of the country, we can certainly seek a “political settlement” to redress “old grievances”.

We need development and we must muster all the “Pakistani characteristics” of our current political system to get it – because for some reason the smell of burning garbage isn’t that sweet here in Pakistan – and trust me, I have had my fix even in the one week that I have been here so far. Two public institutions, in the otherwise really nice and clean locality where my parents built their house, fail to own garbage collection, passing on responsibility to the other, so people have no choice but to burn it. Win-win, you ask? Three days ago a horse cart was crossing a traffic signal on a red light, just as I was crossing the same signal from the perpendicular direction on a green light – I almost collided with it, which would have been a great story. But for some reason, these sights, these sounds and these smells, just don’t feel that exotic to me in this country – I don’t want them. Let’s change them.

A few years ago, the late Ethiopian Prime Minister (Meles Zanawi – who died only a few days ago), was really angry and frustrated after he was having trouble sourcing financing for a large multipurpose dam from international Development Financial Institutions, in that country which is often called the water tower of Africa, and has enough hydropower potential to light up the entire African continent. The story is that Western countries, who control these institutions, and built their own economies on the backs of large multipurpose dams, now don’t want such projects for developing countries because of the negative environmental impact. Zanawi, understandably frustrated, remarked that Western countries want to see Africa underdeveloped forever, so that their tourists can enjoy its poverty. But in Pakistan we have no such luck – with Western tourists almost non-existent in our country, thanks to the security situation we have created for them, and my own double standards, we have no choice but to develop ourselves. No one is left to enjoy our poverty.

Coming back to China – China’s an incredible development story. You need to see it to understand it and believe it. That poverty is fast being completely eradicated – catch it soon, before it disappears. I am already planning another trip, this time to some of the Western, less developed and more exotic States, along the Silk Route and Tibet. I hope I get to catch some poverty twilight glimmers there.

Why good is not great in Social Enterprise, and how to fix it

I was having a drink with a friend recently, who has been leading one of the most well-known impact investment funds in this region. He remarked that this space (Social Enterprise and Impact Investing) is a “bubble”, one which will take a little longer than traditional bubbles to deflate, because of all the structural issues (some of which I will outline below). The word bubble is not the most elegant one to use here – finance types like to use it for asset prices, and get uncomfortable when it is used to define the state of a rather unusual industry. For the sake of greater clarity or even accuracy, I will state that Social Enterprise might be “over-hyped” – it is in the midst of a marketing and communication bubble. But my overall perspective is that regardless of the over-hype, this space is a very important piece of the overall development puzzle, and that we need to shift towards greater rigor across leadership in this industry to help ensure that it does not “deflate”.

From Bill Easterly to Jacqueline Novogratz, the leaders who created this space will tell you that Social Enterprise is an unequivocal improvement on traditional aid and philanthropy. Whether they describe it as “bottom-up development”, “market-driven development”, “searchers succeed while planners fail” or “a new approach to development, combining business & philanthropy”, what is clear is that they see this as a distinct new approach – one that is superior to more traditional approaches with the same fundamental development or poverty eradication goals. Now, charismatic, path breaking leaders often need to hold extreme views in order to get noticed – Bill Easterly would not have sold thousands of books if his views were balanced. And as bland as this might sound, I will go ahead and state that they are all right to some extent – each approach has its place depending on the situation or context, and we need a combination of many approaches across the overall development sector.

But what I have found to be true in my work on the ground here in Kenya is that the two approaches or spaces are remarkably similar – and that many of the criticisms applied to traditional aid and philanthropy can in fact be extended to this space (Social Enterprise or Impact Investing). The following phrase might be interestingly paradoxical, and summarize my key thoughts:

When you’re doing good, it’s hard to do great

First of all, the economics of an impact investment fund are extremely challenging. The deal ticket sizes are quite  small (around USD 1 million on average), and with heavy internal deal team and professional services expenses required on each and every deal (from the accounting due diligence to commercial due diligence to the drafting of lengthy legal documentation), these funds typically end up costing at least 15% of their Assets Under Management (several times a traditional PE or VC fund – a cost base which is too high to cover across any investment asset class, let alone risky young social enterprises) –  and this is just to maintain a steady mid-sized portfolio (I won’t list any hard facts here: the Acumen Fund and Grassroots Business Fund Annual Reports are available on their websites, and list specific figures; also I won’t share any specific stories or anecdotes about deal team associates flying half-way around the world five times over the course of a four month deal, or staying at the fanciest hotels).

None of these funds have reached serious scale (barring one or two which are tapping into Private Banking channels for funding, and are a little more commercial in nature) – this is unlike a traditional service business which, if successful, can be scaled exponentially by focusing on growing and training its talent base. Most of these funds have had stagnant and relatively insignificant deal flows, never more than a few million dollars a year – “a drop in the ocean”, if I might describe them as such.

Now, I don’t know exactly where the key constraints or pain points are in terms of reaching scale – there could be more than one which are significant. Finding investible companies is hard; finding philanthropists to donate must be hard, especially with the challenging economics and still relatively nascent state of the industry; and finding talent must also be hard, especially when it is necessary to focus on keeping costs low because of the challenging underlying economics of the business.

But the economics of the funds themselves are only a small piece of the overall issues in this space. One of my major observations from on-the-ground here in Kenya is that while these investments or companies are arguably doing a lot of good, they are very clearly not doing the best they possibly could. Governance is quite weak, and is clouded by the “double-bottom line”. When you’re doing good, it’s hard to set and enforce the bar for great – especially when what you’re doing has never been done before. There is frequently a lack of strategic focus – almost an inability to understand strategic fit. Anything that sounds good, sounds right, and needs to be done. As a result nothing is done effectively or efficiently. When you’re doing good, ideas rarely go through tight scrutiny. Even if the funds’ Investment Committees are doing a great job up in New York (which many in this space will tell you are in fact doing the opposite – holding up deals, largely for trivial, even egotistical reasons), the companies on the ground in Kenya and elsewhere frequently veer off course.

The fundamental issue is that when philanthropic capital is deployed anywhere, whether in a social enterprise or through traditional aid, there is insufficient ownership. The company, or more fundamentally the cause is somewhat orphaned. It’s exactly the same issue across this new Social Enterprise or Impact Investment approach, as was the case across the more traditional aid or direct philanthropy approach. In contrast to this, private capital, driven by the profit motive, creates a very strong and direct sense of ownership – profit is such a great motivator; and so easy to measure and reconcile.

This is a broad criticism, and one which is certainly not new – and even though it is a structural deficiency, I am by no means suggesting that we should do away with this industry all together. After all, profit-driven capital is not comfortable taking the risks inherent to this “patient capital” approach, so Impact Investing is extremely important and here to stay. But it’s a shame that the self-perception of those currently in this space (the marketing machines in some of these funds are remarkably strong) is quite different to the reality myself, and others (including one of the leaders of these funds I was having drinks with) see on the ground – bridging this gap is extremely important.

And to add to why this industry is so important – a bit of business rigor is better than none. I would not want to see any of these social enterprises run as pure NGOs (the acronym often means - "Nothing Going On"). Also, avoiding hand-outs preserves dignity and creates ownership – so there is value in making people at the base of the pyramid pay for goods and services, even though these goods and services are almost always “subsidized” within this space. I state that these goods are “subsidized” because most of these social enterprises are only in business, because of the lifeline which is low cost philanthropic capital provided by impact investing funds (in spite of the fact that both sets of players almost always claim to be “for-profit” or are at the very least shooting for sustainability). And precisely because this capital is subsidized or philanthropic, no one takes serious ownership of how efficiently it is used or how quickly it is deployed to achieve scale – “orphaned capital”, which is the core issue.

But at least the people who eventually buy the goods or services don’t know of or understand the subsidies or the way the philanthropy is being channeled, and retain their dignity and sense of ownership. (Overall comment: there have in fact been JPAL and other studies, carried out e.g. around mosquito nets in Kenya, which show that paying for something creates no difference in terms of eventual usage behavior or utility, but I do believe that dignity alone is extremely important to the human spirit, and that hand-outs can create “a sense of entitlement”, which can be very harmful).

Ultimately, I want to see Social Enterprise companies and funds managed to the same level of rigor and overall standards, as profit-driven companies. As always, people in leadership really matter – they can fill the gap in ownership, and move the industry from the mediocre standards where it currently seems to be stuck, towards a much higher bar. I am not saying that all leaders in this space should become extremely critical hard-asses, because no one likes to follow a critical hard ass. But we should be critical enough to know where we currently stand and use our charisma to inspire everyone to higher standards.

Overall, I think we need to see a shift in leadership from the old charismatic, even dreamy path breakers, to those who are a little more critical and pragmatic in their management approach. We need individuals with strong private sector experience, but those who are fundamentally geared towards driving social change. Those who are independent minded and bold enough to take on the risks inherent in pushing for higher standards. There’s much to be done, and choosing to follow the next generation of leaders wisely is the right place to start.

Government matters

I wish to highlight this great op-ed by David Brooks:


http://www.nytimes.com/2012/04/13/opinion/brooks-sam-spade-at-starbucks.html?_r=2

The simple message - fixing public institutions and public / social structures for decision making, delivering law and order, etc., especially in places like Pakistan or Kenya ("failing states"), is essential.

It's hard for example for an American expat to do so in Kenya. But if one has any sort of national or regional ties in a "failing state", one absolutely has to dedicate oneself to changing the public system, rather than take it as a given, and try to work within its constraints in an NGO or Social Enterprise. Although both are great causes, I would argue strongly that one is much more important than the other. And too many talented young local individuals who wish to see social change, are often resigned to the fact that they cannot drive change in the public sector, and so end up in NGOs and Social Enterprises - good effort, but they could do better.

This is not about bottom-up versus top-down development; Bill Easterly versus Jeff Sachs; donor push versus need-based pull; large scale versus drop-in-the-ocean. It's about the simple fact that if the fundamental enabling environment isn't healthy, nothing will ever work.

Mobius Motors – Perspectives on “the car for Africa”

Almost all social problems are rooted in one cause – poverty. This is why broad based economic development, and enterprises or institutions which create or redistribute wealth or value are so important. This is not a new thought – the old adage, “teach a man to fish” is almost clichéd. I find great purpose in my work for a deep rural agricultural microfinance institution, because it creates and distributes wealth to the base of the pyramid.

But some problems require more immediate, direct and literal solutions. It is much easier for example, to eradicate diseases like polio with a few simple drops delivered directly by a state social program or NGOs, than to wait a couple of generations for society to be wealthy and functional enough to build out private infrastructure and institutions to deliver polio drops.

Where does access to transportation fall? Will transportation only become universal as poverty is alleviated, or does it require a more immediate and literal solution? The good folks at Mobius Motors, dubbed “the car for Africa”, belong to the later camp. Joel Jackson, the founder, suffered from the transportation problem first hand, waiting for hours and walking long distances to serve clients at Kamaza, a social enterprise which enables farmers to plant wealth creating eucalyptus trees along the Kenyan coast. Getting around in deep rural Kenya is tough – while I have been lucky not to have to walk for miles or wait for hours for unreliable public transport, I have had my fair share of adventures. Visiting loan groups for example, riding on the back of a “bota bota” or motorcycle taxi for an hour, clinging to the back frame for dear life on dirt roads so bumpy and terrain so hilly, I had to close my eyes and think good thoughts consciously to “enjoy the ride”.

Mobius hopes to change this. They already have a second prototype built out and have begun taking orders for their first batch of serial production, with 50 cars rolling out of the production workshop by the end of the year. The car is priced at USD 6,000. For some reason the first prototype reminds me of the Ford Model T (Exhibit A), whereas the second one looks like something in between an old Land Rover Defender and a new Range Rover (Exhibit B). I am told that the 50 units will be based on a third prototype which is yet to be produced, but will be narrower and sleeker.

The overarching design principle is simple and clever. Using a standard Toyota Corolla engine, which can be serviced and repaired easily almost anywhere on the African continent, they have built around it a body with a simple pipe frame covered with a thin metal sheet. The car is stripped of all frills including a solid roof, with some of the savings invested in greater ground clearance and a robust suspension to handle the bumpy roads. The design is thoughtfully tailored to the African market.

The car looks novel – we took it around Kibera, the largest slum in Nairobi, for a test drive and on lookers cheered us, with two separate groups even shouting “Al Shabbab”, the name of the Islamic rebel group fighting the Government and Kenyan security forces in Somalia. Who doesn’t like a new car, especially an indigenous car everyone can call “Kenyan”? Who doesn’t like building or investing in a new car company?

But beyond the novelty and fanfare, I want to think deeply and critically through what it will take to make the car succeed at solving the transportation problem in Africa. First of all, at USD 6,000 it is beyond the reach of the vast majority of the African population, with an average income of just USD 1,000 a year. Cars are fundamentally not cheap, whether they cost USD 12,000 and include airbags and power windows or are stripped of all the frills to slash the price by half. I at least think that broad based economic development and wealth creation will do more to solve Africa’s transportation problem than an immediate and literal solution in the form of an actual car.

It will however serve the existing transport market, whether for middle class households looking for an affordable ride, or for transporters and service middlemen in urban and rural distribution. Right now, the households have to buy second hand reconditioned cars from Japan, and the transporters rely on existing bikes, tuk tuks, vans and trucks in the market.  Goods and people are actually moving around where there is population density and where people are prosperous enough to afford transportation services. Mobius will just add to the array of options in this already existing market – with a unique price point and utility combination which might be superior to some of the other offerings for some buyers. Our Toyota Hilux truck at my microfinance institution, set us back USD 30,000 but can perform wonders. We can, however, buy five Mobius cars for one Toyota Hilux truck. And even though the two are vastly different beasts, with the Mobius able to do less, I think five Mobius’ deliver far more value than one Toyota Hilux to our microfinance operations.

But the question is whether or not Mobius is in fact a unique car on the global market. I think there are plenty of contraptions in India, Pakistan and China which are very similar in design to the Mobius. If I think about just India, a market I know somewhat, between the Mahindras and the Tatas there are over a dozen low cost models which cover the full spectrum of price points and utility (Exhibit C). In Pakistan, the old Suzuki Ravi, Hyundai Shehzore, and Suzuki Bolan are competing for this space (Exhibit D). They are extremely low cost, 800 cc vans built on 1970s carburetor engines with robust suspensions. I have seen them successfully climb the steep hills of Muree and whisk through the bumpy dirt roads in the plains of Punjab. Modular in design, owners can build out seating and shade in the back, using them for passenger transport, or build out a cabin to transport goods. They perform well even though they are almost always overloaded with everything from passengers to freshly harvested sugar cane. Priced at USD 5,000 to USD 8,000, this is as affordable as transportation can get.

But even if the car already exists, there is no harm in building another one. Except that the product development process at a nascent institution lacks the capability, efficiency or rigor that a Tata is able to invest in building out the Nano for example at Italdesign, a specialized automobile design and engineering company based in Italy. Italdesign has designed and tested out everything from Lamborghinis to Volkswagen Beetles. I guess an automotive engineer and a few mechanics can get together in a garage and knock anything out. But if a product’s fundamental cost advantage is that it lacks the investment in man hours to develop it, then why doesn’t automotive production become a cottage industry? Why invest in thousands and thousands of hours of rigorous design and testing?

Also, with a two year product development cycle, nascent organizations can become very product centric. This is true not just in automobiles but also emerging products like solar solutions. “Build and they will sell” – but I suspect that it’s not that easy. Success lies in distribution. One always hears about the 3S in the automotive industry – sales, service and spare parts. Buyers are often reluctant to take the plunge until all three blocks are in place. And they want nationwide coverage – cars are after all moving from place to place. Sure we’re talking about a basic Toyota engine which can be serviced by any mechanic. But will buyers take the first leap? One example comes to mind of Adam Motors in Pakistan – similar idea of an indigenous and low cost car. They built three models (Exhibit E). Adam Zabardast, a super low cost pickup van built on a basic 1970s carburetor engine, Adam Revo a small low cost car comparable to the Tata Nano, and Adam Boltoro, a basic but highly rugged SUV. They sold thousands of cars – indeed many patriotic Pakistanis were excited about buying an indigenous Pakistani car. But within a couple of years they were out of business. Their products were breaking down frequently, and they did not build out the 3S infrastructure to service them. By the time they realized this, their reputation was tainted and it was too late to resurrect themselves.

Mobius is also sexy because it is sowing the seeds for the engineering industry in Kenya. Pakistan, for example treats engineering as a priority sector for development, and is already supplying automobiles to Kenya. In fact, many of the buses on Kenya’s Roads, including the infamous “Citi Hoppas” are built by Master Motors, a company based in Karachi. Pakistan’s engineering companies also supply low cost engineering goods to other emerging markets like Bangladesh and Sri Lanka, where customers value cost and are not too demanding on quality. Pakistan has two things going for it – Government protectionism, with 100% plus tariffs on imports, the lifeline for many highly inefficient engineering companies. And we have a very large demand for motors and generally mechanical and ferromagnetic stuff – from the fans which our 180 million strong population require to brave our hot summers, to the pumps our farmers require for agriculture. Gujrat City, in the heart of all the demand in Punjab is an engineering and white goods (refrigerators, washing machines and other household appliances) hub – little kids learn how to weld before they can even walk. My vision is to turn it into a global champion for white good design and manufacturing, much like what Turkey is today.

Building the first serious automotive engineering company in Kenya must be a challenge. From building out supply chains, to ensuring goods clear Mombasa’s port smoothly, to building local production know how. The journey to building out a Gujrat City in Kenya has to begin with a single step. But if the fundamental problem in Kenya and across Africa is that the right car is not being delivered to these markets by foreign automakers, and if the demand and market already exists, then why don’t the likes of Toyota design something similar and build it efficiently in one of their global factories, ultimately building assembly plants out in places like Kenya? They already have the design teams, the production know-how, local sales, service and spare parts. Why go through all this hassle? The answer might be that the likes of Toyota are “sleeping on the wheel” – thus the need for Mobius. A solid exit option might be to sell the Mobius idea and franchise to a major global automaker. If Mobius can open their eyes and show them that this market exists, the 3 to 5 years of toil in the workshop and building 3S all over Kenya might be well worth it.

All the best team Mobius!